The European Union avoided recession during the winter depths of the economic downturn, official statistics have revealed.

The overall EU economy, which declined by 0.2% over the last three months of 2001, grew by 0.2% in the first three months of the year, European Commission economists said.

A second successive quarter of contraction would have signalled that the 15-member EU had officially entered recession.

The Commission also revised its forecast for growth in the current quarter up from 0.3-0.6% to 0.4-0.7%.

This would put Europe on course to meet its estimated growth of 1.4% over the year as whole.
But Thursday's report also revealed the challenge the EU faces in matching the recovery of the US, where growth hit 1.4% over the first three months of the year alone.

Rates dilemma

The figures will add to the dilemma facing the European Central Bank which announces its latest decision on interest rates in exactly one week.

With inflation still above its target level of 2.0%, there has been speculation - reinforced by comments by some ECB board members - that interest rates will soon have to go up.

But the weakness of the European recovery, and uncertainty about the prospects for the rest of the world, could make this a risky strategy.

Germany, which has some of the highest unemployment levels in the EU, has voiced fierce objections to such a course of action - and their concerns are reinforced by the difficult election faced by the ruling Social Democrats in the autumn.

Building boost

EU economists credited the area's return to positive growth largely to a strong performance by the construction sector, where output rose by 1.0% in the January to March period.

The financial services and business activities sector was the second strongest, recording growth of 0.5%.

Exports, which slid by 1.3% during the last three months of 2001, rose by 0.6% in the first three months of this year.

But overall consumer spending remained little changed, despite buoyant retail trading in many members states, including the UK.

Continental growth

The brighter forecast follows reports showing rising business confidence in countries including France, Spain and Germany.

France's economy grew by a higher than expected 0.4% during the first three months of the year, French official statistics showed last week.

Spain put its growth at 2.0%.

The report confirmed that growth in the UK economy, where economic output was "broadly unchanged", is below the EU average.

Britain, which last year boasted the most buoyant economy in the Group of Seven leading industrialised nations, has now slid to bottom spot in the table.